The 22-year-old has been a key player for his Italian club during the 2021-22 campaign, making 15 appearances in all competitions, contributing five goals and three assists in the process.
According to Sky Italy, Man City have been monitoring the Portuguese's performances this season, and the English outfit are keeping a close eye on the attacker's contract situation at San Siro.
The report claims that Milan are attempting to sign Leao to a new deal, but the Citizens are 'ready to take advantage' of the situation if discussions over an extension stall.
Leao started his professional career with Sporting Lisbon before representing Lille during the 2018-19 campaign ahead of a move to Milan.
The Portugal international has scored 18 goals and represented 12 assists in 92 appearances for his Italian side in all competitions, including 16 goals and 10 assists in 76 Serie A outings.